{"id":38106,"date":"2013-05-04T18:11:11","date_gmt":"2013-05-04T22:11:11","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=38106"},"modified":"2013-05-04T18:11:11","modified_gmt":"2013-05-04T22:11:11","slug":"monetary-policy-week-in-review-may-4-2013-europe-india-cut-rates-fed-assures-qe-depends-on-economy","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/05\/04\/monetary-policy-week-in-review-may-4-2013-europe-india-cut-rates-fed-assures-qe-depends-on-economy\/","title":{"rendered":"Monetary Policy Week in Review \u2013 May 4, 2013: Europe, India cut rates, Fed assures QE depends on economy"},"content":{"rendered":"

By www.CentralBankNews.info<\/u><\/a> <\/p>\n

    Last week 11 central banks took policy decisions with six banks keeping rates steady (Angola<\/a>, Albania, the United States<\/a>, the Czech Republic<\/a>, Romania<\/a> and Uganda<\/a>), Bulgaria raising its rate and four banks cutting rates, most notably the European Central Bank<\/a> (ECB) and the Reserve Bank of India (RBI)<\/a> along with Denmark and Botswana<\/a>.<\/div>\n
<\/div>\n
    Both the ECB and the RBI cut their key rates by 25 basis points, both rate cuts were widely expected and both central banks appealed – almost in unison – to their respective governments to get busy on reforming their economies as the problems, as ECB President Mario Draghi said, \u201ccannot be fixed by monetary policy.\u201d<\/div>\n
    That sentiment was echoed by the RBI, which said \u201crecent monetary policy action, by itself, cannot revive growth.\u201d<\/div>\n
    But that is where the similarities end. <\/div>\n
   While Draghi said the ECB is \u201cready to act if needed,\u201d including pushing the deposit rate into negative territory, the RBI cautioned there was  \u201clittle space for further monetary easing\u201d due to inflationary pressures.<\/div>\n
    Despite his willingness to act, Draghi is running out of options to reverse Europe\u2019s shrinking economy. Large banks can draw all the money they need from the ECB at a refinancing rate of 0.50 percent while banks that rely on the interbank market for funds pay 6-7 basis points, or \u201calmost zero, \u201d as Draghi said.<\/div>\n
    <\/span>And a plan to funnel loans to small and medium-sized businesses, mentioned by Draghi last month, turns out to be a very complex undertaking that will not happen in the near term.<\/div>\n
    \u201cThe ECB cannot clean bank\u2019s balance sheets,\u201d Draghi said, admitting that he was frustrated that his efforts were not ending up with \u201cbetter welfare, lower unemployment and better economic activity\u201d in the 17-nation euro area.<\/div>\n
    The core of the problem is that 80 percent of all loans or credits to businesses in Europe go through the banking system but banks are getting weaker and less able to lend as the ongoing recession increases the share on non-performing loans and toxic assets on their books. Some banks will now have to strengthen their capital base.<\/div>\n
    \u201cIn Europe, you have to go through banks. You don\u2019t have capital markets of the kind you have in the United States, so that we have to proceed via the banking system,\u201d Draghi said, adding that 80 percent of all financial intermediation in the U.S. goes via capital markets.<\/div>\n
    So together with the European Investment Bank (EIB), the ECB is working on ways to package and thus create a market for such loans, known as asset-backed securities (ABSs). <\/div>\n
    But it\u2019s far from an easy task and the outcome is far from clear. <\/div>\n
    \u201cWe do not have a precise position on what we will do,\u201d Draghi admitted, \u201cyou have to consider that the ABS market is dead and has been dead for a long time.\u201d<\/div>\n
<\/div>\n
    Another important event<\/b> in central banking this week was the Federal Reserve\u2019s  statement that it may either increase or decrease the amount of assets it will be purchasing, depending on the state of the U.S. jobs market and inflation.<\/div>\n
    Like the Bank of Japan and the Bank of England, the Federal Reserve has been engaged in purchasing various assets, mainly government bonds, to keep long-term interest rates low as a way to  stimulate economic activity when official policy rates hit the zero bound.<\/div>\n
    While the Federal Reserve is still sticking to its current plan of buying $85 billion worth of Treasuries and housing-related debt a month, the issue of how and when it will start to curtail these purchases weigh heavily on investors\u2019 minds.<\/div>\n
    Although the Federal Reserve has assured markets that its \u201cexceptionally\u201d low target for the federal funds rate will remain in place for quite a while, any sign that it will reduce its asset purchases seems likely to be interpreted as the start of monetary tightening, sending shockwaves through financial markets. <\/div>\n
      Every word uttered by members of the Federal Open Market Committee of how and when the Federal Reserve will start to normalize monetary policy is causing jitters in markets, and the debate is likely to dominate sentiment for months.<\/div>\n
    Signs of an improving U.S. economy is immediately met by expectations that the Federal Reserve will wind down asset purchases while signs of a worsening economy is seen as a reason for expanding asset purchases. <\/div>\n
    By now officially linking its asset purchases to inflation and the jobs market \u2013 just like the federal funds rate – the Federal Reserve is seeking to soothe investors\u2019 frayed nerves: Don\u2019t worry, monetary policy will first be tightened when the economy is strong enough to handle it.<\/div>\n
<\/div>\n
    Through the first 18 weeks <\/b>of this year, 20 percent of the 168 policy decisions taken by the 90 central banks followed by Central Bank News have lead to rate cuts, up from 19 percent after the first 17 weeks.<\/div>\n
<\/div>\n
    Central banks in emerging markets account for 38 percent of this year\u2019s rate cuts, but thanks to this week\u2019s cut by the ECB and Denmark, the ratio of rate cuts by banks in developed markets tripled to 9 percent from 3 percent. <\/div>\n
    Central banks from other markets – such as Botswana this week and Mongolia and Georgia in past weeks \u2013 account for 41 percent of all rate cuts this year.<\/div>\n
    But the overwhelming majority of this year\u2019s decisions by central banks, 76 percent, have gone in favour of holding rates on hold following last year\u2019s spree of rate cuts and the slow, but gradual improvement of the global economy. <\/div>\n
<\/div>\n
LAST WEEK\u2019S (WEEK 18) MONETARY POLICY DECISIONS<\/b>:<\/div>\n
<\/div>\n
\n <\/p>\n<\/col>\n<\/col>\n<\/col>\n<\/col>\n<\/col>\n\n\n\n\n\n\n\n\n\n\n\n\n\n
COUNTRY<\/td>\nMSCI<\/td>\n    NEW RATE  <\/td>\n        OLD RATE<\/td>\n       1 YEAR AGO<\/td>\n<\/tr>\n
ANGOLA<\/td>\n<\/td>\n10.00%<\/td>\n10.00%<\/td>\n10.25%<\/td>\n<\/tr>\n
BOTSWANA<\/td>\n<\/td>\n9.00%<\/td>\n9.50%<\/td>\n9.50%<\/td>\n<\/tr>\n
BULGARIA<\/td>\nFM<\/td>\n0.02%<\/td>\n0.01%<\/td>\n0.15%<\/td>\n<\/tr>\n
ALBANIA <\/td>\n<\/td>\n3.75%<\/td>\n3.75%<\/td>\n4.25%<\/td>\n<\/tr>\n
UNITED STATES<\/td>\nDM<\/td>\n0.25%<\/td>\n0.25%<\/td>\n0.25%<\/td>\n<\/tr>\n
EURO AREA<\/td>\nDM<\/td>\n0.50%<\/td>\n0.75%<\/td>\n1.00%<\/td>\n<\/tr>\n
CZECH REPUBLIC<\/td>\nEM<\/td>\n0.05%<\/td>\n0.05%<\/td>\n0.75%<\/td>\n<\/tr>\n
DENMARK<\/td>\nDM<\/td>\n0.20%<\/td>\n0.30%<\/td>\n0.60%<\/td>\n<\/tr>\n
ROMANIA<\/td>\nFM<\/td>\n5.25%<\/td>\n5.25%<\/td>\n5.25%<\/td>\n<\/tr>\n
UGANDA<\/td>\n<\/td>\n12.00%<\/td>\n12.00%<\/td>\n20.00%<\/td>\n<\/tr>\n
INDIA<\/td>\nEM<\/td>\n7.25%<\/td>\n7.50%<\/td>\n8.00%<\/td>\n<\/tr>\n

<\/tbody>\n<\/table>\n<\/div>\n

<\/div>\n
    Next week<\/b> (week 19) features 13 central bank policy decisions, including Australia, Sri Lanka, New Zealand, Norway, Poland, Georgia, South Korea, United Kingdom, Malaysia, Peru, Egypt, the Philippines and Mozambique.<\/div>\n
    In addition, the U.K is hosting the spring meeting of Group of Seven (G7) finance ministers and central bank governors on Friday and Saturday. The G7, which has met regularly since 1976, comprises Canada, France, Germany, Italy, Japan, the UK and the USA. Representatives of the European Union, the ECB and heads of international financial institutions also attend the meetings. <\/div>\n
<\/div>\n
\n <\/p>\n<\/col>\n<\/col>\n<\/col>\n<\/col>\n<\/col>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
COUNTRY<\/td>\nMSCI<\/td>\n             DATE<\/td>\n              RATE<\/td>\n       1 YEAR AGO<\/td>\n<\/tr>\n
AUSTRALIA<\/td>\nDM<\/td>\n7-May<\/td>\n3.00%<\/td>\n3.75%<\/td>\n<\/tr>\n
SRI LANKA<\/td>\nFM<\/td>\n7-May<\/td>\n7.50%<\/td>\n7.75%<\/td>\n<\/tr>\n
NEW ZEALAND<\/td>\nDM<\/td>\n8-May<\/td>\n2.50%<\/td>\n2.50%<\/td>\n<\/tr>\n
NORWAY<\/td>\nDM<\/td>\n8-May<\/td>\n1.50%<\/td>\n1.50%<\/td>\n<\/tr>\n
POLAND<\/td>\nEM<\/td>\n8-May<\/td>\n3.25%<\/td>\n4.75%<\/td>\n<\/tr>\n
GEORGIA<\/td>\n<\/td>\n8-May<\/td>\n4.50%<\/td>\n6.00%<\/td>\n<\/tr>\n
SOUTH KOREA<\/td>\nEM<\/td>\n9-May<\/td>\n2.75%<\/td>\n3.25%<\/td>\n<\/tr>\n
UNITED KINGDOM<\/td>\nDM<\/td>\n9-May<\/td>\n0.50%<\/td>\n0.50%<\/td>\n<\/tr>\n
MALAYSIA<\/td>\nEM<\/td>\n9-May<\/td>\n3.00%<\/td>\n3.00%<\/td>\n<\/tr>\n
PERU<\/td>\nEM<\/td>\n9-May<\/td>\n4.25%<\/td>\n4.25%<\/td>\n<\/tr>\n
EGYPT<\/td>\nEM<\/td>\n9-May<\/td>\n9.75%<\/td>\n9.25%<\/td>\n<\/tr>\n
PHILIPPINES<\/td>\nEM<\/td>\n10-May<\/td>\n3.50%<\/td>\n4.00%<\/td>\n<\/tr>\n
MOZAMBIQUE<\/td>\n<\/td>\n10-May<\/td>\n9.50%<\/td>\n13.50%<\/td>\n<\/tr>\n

<\/tbody>\n<\/table>\n<\/div>\n

<\/div>\n
    www.CentralBankNews.info<\/a><\/div>\n
<\/div>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

By www.CentralBankNews.info     Last week 11 central banks took policy decisions with six banks keeping rates steady (Angola, Albania, the United States, the Czech Republic, Romania and Uganda), Bulgaria raising its rate and four banks cutting rates, most notably the European Central Bank (ECB) and the Reserve Bank of India (RBI) along with Denmark and Botswana. … <\/p>\n

Continue reading “Monetary Policy Week in Review \u2013 May 4, 2013: Europe, India cut rates, Fed assures QE depends on economy”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-38106","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/38106","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=38106"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/38106\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=38106"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=38106"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=38106"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}